By TIOL News Service

MUMBAI, JUNE 17, 2014: THE issues before the Bench are - Whether a lift installed by an assessee in the premises of the society apartment can be claimed as revenue expenditure, considering the person has both professional and residential set up in the same apartment; Whether the entire amount of such expenditure can be allowed as business expenditure when the advantage and facility of the new lift is not restricted exclusively for the professional activity of the assessee, but also enjoyed by assessee as well as family members of the assessee – Whether it is a relevant criterion for the purpose of considering the allowability of expenditure that the lift is also being used by other residents of the buildings and Whether the assessee, who is a lyricist by profession can be said to have derived any capital advantage from such expenditure, although the ownership of the lift vests with the society. And the answers partly favour the assessee.

Facts of the case 

The assessee is a lyricist and a well known film personality. The assessee stated that he operates his profession from the premises 6th and 7th floor, Juhu Sagar Samrat, Co.op Housing Society Limited. The building was an old seven storied building having one lift. Since the lift was old, it used to get out of order very frequently, causing substantial hardship to the persons visiting to the assessee for professional purposes. The society was reluctant to spend money to replace the lift. The assessee spent a sum of Rs. 17,32,436/- for installation of a new lift in the building and claimed the same as society development charges in the Profit & Loss Account. The AO disallowed the same and held that the elevators installed was at the cooperative housing society and an essential part of the building to be treated a capital asset, and, therefore, it cannot be considered as revenue expenditure. The AO further goes to held that it cannot be found to be treated as capital expenditure because the assessee was not the final owner of the asset on which the depreciation is claimed. On appeal, the CIT(A) held that since the premises was used for both residential and professional purposes, therefore, it cannot be held that the purpose of purchase of lift for business/professional purpose only. Hence CIT(A) allowed 50% of expenditure claimed by the assessee to be capitalized and depreciation at prescribed rate.

Cross appeals were filed by the assessee and the Revenue.

The counsel of the assessee submitted that though the assessee does not own the lift in question, however the expenditure has been incurred by the assessee for smooth professional work of the assessee as the old lift was not working properly which caused a substantial hardship and damage to the assessee on its professional front. He has further contended that as a result of expenditure the assessee has not acquired any capital asset because the lift does not form part of the capital structure or asset of the assessee. The counsel has relied on the decision of Supreme Court in the case of L.H. Sugar Factory & Oil Mills (P.) Ltd. Vs. CIT. The counsel submitted that the expenditure has been incurred by the assessee for advantage of facilitating the professional activity of the assessee and enabling the assessee to manage and conduct his profession more profitably without any change in the fixed capital of the assessee and hence, is allowable as revenue expenditure.

The Departmental Representative contended that for the purpose of allowing the expenditure the mandatory condition is that the same should be incurred wholly and exclusively for the purpose of business of the assessee. The assessee has installed the lift in the building belonging to the society and, therefore, the question of exclusive purpose of business of the assessee does not arise.  The DR has also relied on several decisions in support of his arguments.

Having heard the parties, the Tribunal held that,

++ the building in question is consisting of 7 floors and 14 flats out of which the assessee owns two flats. From one flat the assessee is doing his professional work and the other flat is used for residential purposes. It is apparent from the facts that the assessee has incurred the expenses for replacement of the lift due to compelling circumstances as the assessee was facing inconvenience and hardship in his professional front as well as residential and private life due to frequent break down of the old lift in the said building. Thus it is clear that the advantage and facility of the new lift is not restricted exclusively for the professional activity of the assessee but it also enjoyed by assessee as well as family members of the assessee other than the professional purpose. Though the lift is also being used by other residents of the buildings, however for the purpose of considering the allowability of expenditure the use of lift by other residents in the building is not so material or relevant. The assessee has incurred the expenditure keeping in view its professional and family requirements. For allowing the expenditure u/s 37 of the Income Tax Act, the mandatory condition is that the expenditure has to be laid out wholly and exclusively for the purpose of business or profession of the assessee however it should not be on the capital field. So far as the nature of the capital in question is concerned since the assessee does not acquire any advantage in the capital account or any new asset for its professional purpose and the lift in question is not an apparatus of generating the professional income, therefore, we are of the view that it cannot be considered as an expenditure of capital nature as it does not create any new asset belonging to the assessee. The CIT(A) having considered this fact that the assessee is having residence as well as office in the same premises and the lift is installed for the purpose and interest of his profession as well as non professional and family members personal convenience, therefore, the whole expenditure is not found to be incurred exclusive for the purpose of profession of the assessee;

++ we do agree with the view of the CIT(A) to the extent that 50% of the expenditure to be considered for professional purpose. However since the expenditure in question does not create a new asset or bring any advantage in the capital account of the assessee, therefore, it cannot be treated as capital in nature. As we have already observed that the expenditure has been incurred in the compelling circumstances to remove the inconvenience and hardship faced by the assessee in its professional work as well as non professional life and the advantage of the said expenditure is to facilitate the assessee's professional activity to be carried out more efficiently and profitably. Therefore, 50% of the total expenditure which is considered to be for the professional purpose is allowed as revenue expenditure. Accordingly the impugned order of CIT(A) is modified to that extent.

(See 2014-TIOL-324-ITAT-MUM)